What's new in business news: November 28, 2013

Bank of Thailand cuts interest rates to offset risks to economy, Mobile chat app popularity cuts into voice profits & with double taxation on foreign investments Thai firms don't bring profits home.

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ECONOMY

Bank of Thailand cuts interest rates to offset risks to economy

The Monetary Policy Committee (MPC) voted 6-1 unexpectedly to lower the policy interest rate by 25 basis points yesterday to 2.25%, for the second time this year. The 2013 gross domestic product (GDP) growth forecast was also reduced to 3% from the 3.7% predicted in October. 

Since Thai economic growth has been lower than expected, the MPC sees the need to maintain the accommodative monetary policy stance. Disappointing third-quarter growth also contributed to the move. Economic growth increased by 2.7% year-on-year in the third quarter, down from 2.9% in the previous quarter and 5.4% in the first quarter, as both domestic consumption and private investment lost momentum, while exports did not gain traction. The decision was not based on domestic political developments alone. Other factors such as weak exports, falling consumption and a slowdown in public and private investment were taken into consideration.

The surprise rate cut also gave a boost to the Thai stock market, with the stock index surging 1.06% yesterday to close at 1,373.11 points with property development stocks among the big gainers.

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MOBILE PHONES 

Mobile chat app popularity cuts into voice profits

Local mobile phone operators are likely to see flat service revenue growth in 2016 as social networks eat into mobile voice and data markets.

Thanks to the migration from 2G to 3G networks local operators will have the potential opportunity to enjoy strong revenue growth from mobile data services until 2015, but after that,  the popularity of Line, WhatsApp and similar messaging applications may cause a decline in revenue. Japanese mobile giant NTT DoCoMo reported a 40% decline in average revenue per voice user for two years in a row. Operators in Thailand are facing the same fate, with average revenue per postpaid user dipping 15.5% from 2008-13. Average revenue per prepaid user fell by 2.3%. Minutes usage from mobile phones is gradually declining, especially among postpaid users, thanks to the launch of Line's social messaging app in 2011. To survive, operators must seek new revenue sources and diversify into other businesses.

In the future, the average Thai may soon have as many as seven internet-connected devices on a single data tariff plan. The number of smartphone users in Thailand could reach 40 million by 2017, up from 15 million in 2013. Tablet users could reach 20 million by 2017, up from 5 million this year. Thailand's data traffic growth is expected to surge by 30 times in the 10 years to 2020.  The average Thai is expected to use one gigabyte of mobile content a day by 2018, up from 15 megabytes a day now. Thailand's adoption of fixed-line broadband still lags in the region. In South Korea, broadband uptake is 40%. The average speed of fixed broadband in Thailand is 4.5 Mbps, ranking 51st globally and mid-tier in Asia-Pacific.

The Android operating system will likely remain the most popular platform, with half the global market share. Android is expected to post a compound growth rate of 36% during 2013-17, with Apple's iOS at 39% and Microsoft's Windows Mobile at 88.4%.

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FOREIGN INVESTMENTS

With double taxation on foreign investments Thai firms just send profits to other countries

Labour in Thailand is in short supply and wages are high so companies in labour-intensive industries have begun to relocate their production to other Southeast Asian countries to lower costs after the daily minimum wage was lifted to 300 baht nationwide at the start of this year. Garment manufacturers, for instance, have shifted their production bases to Laos, Vietnam and Indonesia, where labour costs are much cheaper. Myanmar is also starting to attract labour-intensive industries. About 25 Thai garment companies have invested in neighbouring countries and 10 more will follow suit next year.

However, many Thai companies investing abroad suffer high tax expenses as they have to pay corporate taxes both in Thailand and in the countries where they invest. When companies have profits, they transfer the money to bank accounts in Singapore or Hong Kong instead of sending it back home to Thailand in order to avoid double taxation. Business leaders and the Federation of Thai Industries (FTI) have encouraged the government to facilitate inbound money transfers into Thailand to encourage outbound investments by Thai companies for many years. 

The government suggested that the private sector should invest in overseas markets to cope with appreciation of the baht, but the cost is double when they transfer money back to Thailand. Sectors such as garments, steel, automotive, cosmetics and electronics are keen to expand overseas and need more help from the government. Labour-intensive sectors can also utilise production bases in neighbouring countries to export to developed economies through the Generalised System of Preferences (GSP) that is available to less developed countries.

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About the author

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Writer: Jon Fernquest
Position: Online Writer